Collecting money from customers

So my client asked me, “How do I collect past due accounts. My terms are net 30, but customers are taking 60 days or more to pay. I do not want to alienate my customers by taking a hard line on collecting”. Here is what I suggested to this client (and to other clients who have accounts receivable issues):

1. Make sure that the payment terms are clearly noted on the invoice. These will be your terms – unless you have accepted a purchase order from a company that clearly spell out different terms, in which case you will have to show and accept the customer’s terms. Also, the invoices should be sent out as soon as products shipped or services rendered.

2. Two days before the due date, call the customer and ask for accounts payable. Introduce yourself as being from the accounts receivable department of your company. Then say, “my records show that our invoice (number) for (invoice amount) is due for payment (give due date). Can you tell me when the check will be written?” There will be one of several responses:

a) “I’m sorry, but I have no record of the invoice”. Your reply will be, “If you will give me your fax number, I will fax a copy to you right away”.

b) “The check will be written on (date).” Write down the response along with the person’s name and thank them for their help.

c) Most other answers will be delaying tactics. Leave your name and number and ask to be called as soon as the “problem” is resolved. Suggest that you will call back in one week to determine current status, and get name and extension of person you are talking with. (Then call back in one week).

This approach will a) make you the squeeky wheel that gets attention without being at all threatening; b) make the accounts payable clerk (especially in a larger company) your ally in getting the invoice paid.

2. If you have not received the check within five days of the committed date, call the clerk back and expressed surprise that you have not received the check yet. Ask for the date, check number, and amount of the check. If that information is not available, the check has not been written, so ask for a new commitment for a payment date. Repeat step 2 till paid.

3. If you have followed these steps and the invoice is 30 day past the due date, call demanding payment and follow up with a firm yet non threatening letter. If the situation lasts much longer, you may need to take much more aggressive collection actions.

Following these steps will usually result in much quicker payment, even from a business that is having financial problems.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com